Question

BE13-5 (L01) Dillons Corporation made credit sales of \(30,000 which are subject to 6% sales tax. The corporation also made cash sales which totalled \)20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record Dillons’ cash sales.

Short answer

The amount of sales tax payable is $1,170.

Step-by-step solution

Meaning of Credit Sales

Sales are said to be credit sales when the seller transfers risk and rewards related to goods to the buyer but receives the price of goods later. The seller charges interest from the buyer if payments are not made between the interest-free credit period.

Journal Entries

Date	Accounts and Explanation	Debit $	Credit $
	Accounts Receivable	$31,800
	Sales		$30,000
	Sales Tax Payable ( $30,000 x 6%)		$1,800
	Cash	$20,670
	Sales		$19,500
	Sales Tax Payable ($20,670 / 1.06 = $19,500)		$1,170